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Charitable Donations, Tax Shelters and Fraudulent Practices

Most charities are honest. However, some people who claim that they are raising funds for a charity keep the funds for themselves. The document Charitable Donations and Gifts: Giving Wisely (IN-518-V) provides useful information to people who are planning on making a donation to a charity.

Some people may be approached to participate in activities that use charitable donations as tax shelters. Taxpayers should avoid fraudulent practices such as accepting receipts for an amount that is three to four times the amount of the actual cash donation. Taxpayers need to be aware that any tax credit they claim can be verified and disallowed by Revenu Québec.

A person who is thinking about participating in such activities should obtain an independent legal opinion or fiscal advice from a tax consultant who is neither involved in the activity in question, nor associated with the activity's promoter. Furthermore, if property is involved, the person should also obtain an independent appraisal of the actual value of the property. In the documentation that promoters provide, they often claim to have obtained a legal opinion or fiscal advice from a law firm. Oftentimes, such opinions or advice consists of general comments and do not fully support the activity in question.

Tax shelter numbers are used for identification purposes only. By no means do they guarantee the right to tax shelter benefits.

Other fraudulent practices

Taxpayers should avoid fraudulent practices by which their income tax payable is reduced or cancelled by substantial losses or deductions. Such practices include, for example,

  • claiming to be a legal person rather than a natural person;
  • requesting personal information while impersonating a Revenu Québec official;
  • deducting personal expenses or losses by using an enterprise number obtained from the Registraire des entreprises despite the fact that no commercial activities are carried out;
  • deducting fictitious business losses;
  • purchasing a tax loss in order to obtain an income tax refund that is greater than the cost of the investment;
  • using aggressive international tax planning (Revenu Québec wishes to remind taxpayers that any amount earned is income and must be reported, whether it was earned outside Québec or outside Canada);
  • making aggressive use of tax shelters;
  • using tax preparers who promise, among other things, that you will obtain
    • a greater income tax refund than the one a competitor could obtain for you, and
    • income tax deductions without valid supporting documents;
  • participating in an investment club for which excessive fees are to be paid to the promoters on the promise of high returns based on the assumption that the future capital gains realized will be tax-exempt in Canada because the investments are primarily made with foreign corporations or banking institutions.

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